Five Democratic members of the Senate Finance Committee, including Chairman Ron Wyden, have written Treasury Secretary Jack Lew, urging him to implement "common sense" reforms to retirement policy as soon as possible.
Based on testimony heard before the committee in September, the senators suggested several reforms that "Treasury could make today," that, they said, would go a long way toward accelerating retirement savings, particularly with low- and moderate-income workers.
Specifically, the lawmakers claim the Employee Plans Compliance Resolution System, which requires corrective contributions from sponsors when they inadvertently fail to auto-enroll an employee, discourages employers from using automatic enrollment.
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Under existing law, if an employer fails to auto enroll a participant, and then fails to uncover the oversight within the first three months of the year, the employer is required to make a corrective contribution equal to 50 percent of the average deferral made by participants in the plan, on top of the matching and non-elective contributions the employee should have received.
The problem with the regulation, say the senators, is that such a common error is usually discovered at the end of the year, after the plan's audit.
"Many small employers see this as an unfair result, discouraging them from adopting automatic enrollment," wrote the senators.
The Finance Committee has released data showing that in 2012, only 11 percent of 401(k) plans had an automatic enrollment feature. For plans with fewer than 100 participants, the number dropped to 3 percent.
In order to improve those numbers, the lawmakers say Treasury should implement a safe-harbor correction method under EPCRS.
They also pointed to a regulation that discourages small employers from joining multiple employer plans. When one participating employer violates a tax qualification, the entire plan can be disqualified, resulting in potentially "devastating" tax consequences for all of the employers, they noted.
"This not only seems unfair, but is also materially impeding the growth of multiple employer plans among small businesses," the senators wrote.
Treasury can directly resolve that issue, argue the legislators, because the regulation is not a statutory requirement.
They are also lobbying Treasury to amend the regulation that prohibits employers from incentivizing enrollment with small fringe benefits, such as a gift card, which are currently not allowed under ERISA's "other benefit" provision, which says employers can only use a matching contribution to encourage a salary deferral.
Along with Wyden, Sens. Debbi Stabenow, Bill Nelson, Ben Cardin and Sherrod Brown authored the letter.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
